Shorting or short investors managed to profit in the second quarter, despite the good position of the stock market.
So those looking to cash in on falling stock prices generated $10 billion this way last quarter. dollars in paper profit, according to data from S3 Partners.
Investors' expectations were met by industrial, healthcare and financial companies, while the technology industry lost as much as $15.5 billion. dollars. However, the overall result of their shorting was positive – 10 billion. dollars.
Ihor Dusaniwsky, director of research at S3, has high praise for the accuracy of some of the shorts' selections. Especially those who were waiting for IBM and Cloudflare's share price to fall, among others.
The opportunity to cash in on short selling in a rising market suggests that the uncertain macroeconomic environment is forcing investors to focus on a select few large-cap companies, avoiding areas of emerging weakness.
Nvidia's shares rose 37 percent, largely thanks to the Standard & Poor's 500 index gaining 3.9 percent and the tech-heavy Nasdaq 100 up 7.8 percent during the period.
"The market was thought to be too narrow," recalls LPL Financial's chief global strategist Quincy Krosby, noting that there is now a widespread view that the hegemony of the largest companies is coming to an end.
S3 Research Director Ihor Dusaniwsky attributes part of the shorting strategy's success to investors paying more attention to the pace of their trades, meaning market volatility is more important than a company's fundamentals, he notes.
But momentum can change quickly, and Quincy Krosby warns of a transition period ahead. As second-quarter corporate results will be in the spotlight, and any disappointment in the performance of leading technology companies could lead to a decline in quotes. Also important is when the Fed will cut interest rates.